Trim the Excess: Tips for Reducing Costs in Government Contracts

In the world of government contracting and procurement, cost savings and efficiency are paramount. Whether you're an emerging or experienced player in this space—and whether you’re on the contracting or agency side—your ability to provide and procure goods and services at a lower cost is key to winning business with government customers or optimizing your agency’s funds.

A lowest-price proposal has always been the barometer against which an agency judges competitors for Lowest Price Technical Assessment contracts. But cost is fast becoming the government’s main criterion in Best-Value contract awards as well.?

This article explores the importance of cost reduction and offers specific strategies to help reduce costs in both government contracts and direct procurement.?

Cost reduction vs. cost cutting??

Cost reduction strategies differ from cost-cutting measures because the former are proactive, strategic, and enhance productivity and profit. Alternately, cost-cutting is a last-resort tactic contractors implement when forced to change at the last minute. To remain competitive in the government contracting arena, you’ll need to find ways to reduce costs, not cut them.

Cost avoidance vs. cost savings???

Similarly, government agencies should track both cost avoidance and cost savings to understand better the value delivered in each context. Cost avoidance is a reduction in cost resulting in a spend that is lower than would have been if the cost avoidance exercise had not been undertaken. One example is securing longer-term contracts with contracting firms, yet at a fixed price per year. On the other hand, cost savings are more tangible and may involve negotiating down the per-unit price of an item, thus saving money.

Carefully evaluate your direct and indirect costs?

Back to contracting firms:? To reduce costs in government contracts, contracting firms should carefully evaluate direct and indirect costs. Contractors have historically used the same formulas to allocate both. However, today's government contracting environment demands a thorough review of all the practices and components you have in place. This evaluation will reveal areas where you can make changes to gain the upper hand in the contract you are currently bidding on or increase your chances of scoring a win in the future.

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